CEO-to-Employee Pay Ratio and CEO Diversity

Alan, N.S., Bardos, K.S. and Shelkova, N.Y. (2020), "CEO-to-employee pay ratio and CEO diversity", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-03-2020-0107

51 Pages Posted: 22 Sep 2020 Last revised: 29 Sep 2020

See all articles by Nazli Sila Alan

Nazli Sila Alan

Fairfield University - Charles F. Dolan School of Business

Katsiaryna Bardos

Fairfield University

Natalya Y Shelkova

Guilford College

Date Written: August 30, 2020

Abstract

The motivation behind Section 953(b) of Dodd-Frank Act was the increasing pay inequality and supposed CEOs’ rent extraction. It required public companies to disclose CEO-to-employee pay ratios. Using the ratios reported by S&P1500 firms in 2017-18, this paper examines whether companies led by women and minority CEOs have lower ratios than those led by white male CEOs. Results indicate that CEO-to-employee pay ratios are 22-28% higher for female CEOs compared to their male counterparts, controlling for other determinants of pay ratios. There is, however, no statistically significant difference between the pay ratios of minority vs. white male CEOs. Minority female CEOs have lower CEO-to-employee pay ratios than white female CEOs. Consistent with literature, larger and more profitable firms have higher CEO-to-employee pay ratios. While prior studies on determinants of CEO-to-employee pay ratios have used either industry-level or self-reported data for a small subset of firms (resulting in selection bias), this paper uses firm-level data that is available for all S&P 1500 firms because of new disclosure requirements due to the Dodd-Frank Act Section 953(b). Moreover, this is the first paper to test whether gender or ethnicity of a CEO affects within-firm pay inequality.

Keywords: CEO-to-employee pay ratio, Pay ratio, Dodd-Frank Act, Section 953(b), Executive compensation, Median employee pay, Female CEO compensation, Minority CEO compensation

JEL Classification: G30, G34, J31, J33, J41

Suggested Citation

Alan, Nazli Sila and Bardos, Katsiaryna and Shelkova, Natalya Y, CEO-to-Employee Pay Ratio and CEO Diversity (August 30, 2020). Alan, N.S., Bardos, K.S. and Shelkova, N.Y. (2020), "CEO-to-employee pay ratio and CEO diversity", Managerial Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MF-03-2020-0107, Available at SSRN: https://ssrn.com/abstract=3685861 or http://dx.doi.org/10.2139/ssrn.3685861

Nazli Sila Alan (Contact Author)

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

Katsiaryna Bardos

Fairfield University ( email )

Dolan School of Business
1073 North Benson Road
Fairfield, CT 06824
United States

Natalya Y Shelkova

Guilford College ( email )

5800 W.Friendly Ave
Greensboro, NC 27410
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
75
Abstract Views
457
rank
398,094
PlumX Metrics